Currency rout rules out further policy easing

Currencies across Latin America have continued to weaken against the dollar over the past month. Concerns that this could trigger a spate of crises in the region seem overdone. However, one consequence of the latest currency sell-off is that further policy easing by central banks now looks unlikely. We had pencilled in interest rate cuts in Mexico and Peru over the coming months, but have now revised our forecasts and expect rates in both countries to remain unchanged this year. Beyond this, while we don’t expect an aggressive response to Fed tightening, we do expect most central banks to shift into tightening mode in 2016.